CGES Sees Oil Levels Nearing Minimum

Friday, November 19, 1999

Oil inventories are getting so tight that commercial stockcover held by oil companies could hit minimum operating levels by early next year, London's Center for Global Energy Studies warned.
The CGES said that after a heavy draw in September, commercial inventories held in the industrialized nations of the OECD fell again in October - by an estimated 800,000 bpd in the U.S. and Europe.
"What is more, there are hardly any spare stocks at sea, in temporary storage or in the non-OECD countries, the companies having run them down first before tapping their own inner reserves," said the CGES in a monthly report. "Now that middle distillates inventories are also declining the companies may well hit their minimum operating requirement of 50 days of cover some time in first quarter 2000," it added.
The Center said OECD commercial stockcover had fallen from 57 days at the end of June to 54 days at the end of September and would reach 51 days at end-December. Worldwide stockcover was seen sliding from 85 days at end-June to 78 days at the end of the year.
It estimated that stocks would be drawn down by 2.9 million barrels a day during the fourth quarter after a million barrel a day draw in the third quarter.
World oil demand is estimated 75.4 million barrels a day on average this year with the OECD accounting for 47.6 million bpd. Fourth quarter 1999 demand is projected at 49.3 million bpd, up 2.3 million bpd on the quarter.
The CGES said that if OPEC did not act to add extra output soon prices would balloon next year.
"If no action to raise output is take before the onset of winter (prices will rise) to more than $35 a barrel on average in the fourth quarter 2000," it said.
OPEC exporters have already agreed to keep output limits in place until next April and several have said they will consider maintaining the curbs for at least another three months. Two countries - Kuwait and Qatar - say they want to keep output cuts in place until the end of 2000.
"Even to hint that OPEC's supply cuts might continue seems both premature and ill-advised," said the CGES. - (Reuters)